India’s services activity growth weakens for second straight month in May

India’s service sector growth weakened for the second consecutive month in May as inflows of new business grew at the slowest pace since July 2015. Even though certain companies hired additional employees, the total job growth rate was just marginal. Meanwhile, costs of input grew again, resulting in additional rise in prices charged. 

The seasonally adjusted Nikkei Services Business Activity Index for India dropped to 51 in May from April’s 53.7. This shows that business activity grew at the slowest rate since November 2015. Out of the six tracked categories, growth expanded in three of the categories: Post & Telecommunication, Transport & Storage and Financial Intermediation.

Meanwhile, growth in production also slowed down. This, along with the deceleration in services sector led to slower growth in the output of private sector. The seasonally adjusted Nikkei India Composite PMI Output Index dropped in May to a six-month low of 50.9. New work growth in services companies slowed for the second consecutive month.

According to panellists, aggressive marketing campaigns were reported where new inflows of business grew. However, growth is likely to have been capped by the rise in competition and the assembly elections in certain regions. Order books in manufacturing rose at a more rapid rate, noted Markit.

The Indian service sector continues to have spare capacity as unfinished business dropped for the fourth straight month. The rate of backlog reduction was moderate in spite of accelerating in April. Hiring in services sector rose in May, after stagnating in April. However, the overall job creation pace was marginal with just 1% of the survey participants hinting at higher payroll numbers. Employment in manufacturing also rose marginally.

Service providers facing average cost burdens in India increased in May amidst reports of increased petrol prices. Input prices also rose; however, the pace of inflation slowed since April and was below the long-run average. In contrast, cost inflation at manufacturers rose to the fastest since March 2015, said Markit.

Services firms in India project output to rise in the coming 12 months; however, the sentiment was weakest since February. Precisely, 15% of companies project growth in activity. The companies cite the reasons as enhanced marketing strategies, favourable government policies, hopes of improved demand conditions and plans of business growth.